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Lloyds Prefs Tender Offer

Gilts, bonds, and interest-bearing shares
BobGe
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Re: Lloyds Prefs Tender Offer

#460444

Postby BobGe » November 24th, 2021, 12:59 am

Alaric wrote:That's a good reason for accepting the offer as well as the problem that if the Bank of England matched base rate to RPI inflation, the price would tumble.

Tumble? The original Halifax instrument which converted to LLPC traded at around 150-160 when base rate was circa 5%.

GoSeigen
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Re: Lloyds Prefs Tender Offer

#460456

Postby GoSeigen » November 24th, 2021, 6:20 am

BobGe wrote:
Alaric wrote:That's a good reason for accepting the offer as well as the problem that if the Bank of England matched base rate to RPI inflation, the price would tumble.

Tumble? The original Halifax instrument which converted to LLPC traded at around 150-160 when base rate was circa 5%.


That's one of the most disingenuous comparisons I have ever seen! How good did that purchase price look two or three years later?

:-D ;-D

GS

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Re: Lloyds Prefs Tender Offer

#460545

Postby BobGe » November 24th, 2021, 12:38 pm

GoSeigen wrote:
BobGe wrote:
Alaric wrote:That's a good reason for accepting the offer as well as the problem that if the Bank of England matched base rate to RPI inflation, the price would tumble.

Tumble? The original Halifax instrument which converted to LLPC traded at around 150-160 when base rate was circa 5%.


That's one of the most disingenuous comparisons I have ever seen! How good did that purchase price look two or three years later?

:-D ;-D

GS

Ahh, but by then the base rate had fallen to around 0.5% illustrating the instrument to harbour a positive correlation characteristic.
;-)

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Re: Lloyds Prefs Tender Offer

#460694

Postby Mikkko » November 24th, 2021, 9:21 pm

GoSeigen wrote:
Mikkko wrote:Hi all,

I have not been on TLF for some 4 years, in that time I have reached State Pension age .....



If you don't mind me saying so, I don't think these terms mean what you think they mean.

-Irredeemable: this means that the shares were issued without redemption terms so may not be redeemed without reference to the shareholders or creditors of the company (via a high court approval). In other words it means that one of only three legal ways to purchase the shares is unavailable to the company. The other two ways still exist (purchase in the market and capital reduction).

-Preference: this means that before any capital can be repaid to ordinary shareholders (e.g. in a capital reduction) the preference shareholders MUST have their shares purchased first. So if you are relying on not having your capital repaid this feature provides for exactly the opposite to happen. [Not 100% relevant but it also means they must be paid their dividend if junior shareholders get a dividend.]

The fact is any preference share holder buying these prefs is paying a premium over the nominal value of their shares. The only justification for that premium is the ability to keep receiving coupons at a rate (9.25%) much higher than prevailing long-term yields (c5.5%). You must take into account the risk that the ability to keep receiving those coupons may disappear. With NWBD that risk is negligible; with LLPC it's significantly higher.


GS


Thank you GS for your considered reply.

I did actually look at NWBD back in 2012 - I still have the spreadsheet...

Bond Price Not. Rate Yield Issue
LLPC 74.5 9.25 12.42% £300m
LLPD 79.6 9.75 12.25% £100m
NWBD 103 9.00 8.74% £180m

As you can see the LLPx prefs had a yield of over 12% (although suspended at the time)...
and NWBD was under 9%.

So LLPx it was.... I've done very well out of them

But I take on your point - and that of dealtn as well.

The yields of LLPx and NWBD are now very similar so it makes absolute sense to swap some over.

And probably half my LLOY as well methinks.

But I still intend to cling on to some LLPx - unless they make an offer around 200p !!

Regards
Mick

yieldhog
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Re: Lloyds Prefs Tender Offer

#461399

Postby yieldhog » November 27th, 2021, 12:19 pm

As previously posted, I’ve opted to accept the Lloyds offer of 167.25 for my LLPC, which I bought quite a few years ago at 93.26. There’s no single right or wrong answer as to whether anyone should accept or decline the offer, it’s all down to personal circumstances and preferences. For what it’s worth, my reasons for accepting were:
1. In the particular portfolio where I hold the LLPC, I’m in the process of eliminating most of my single company exposures in favour of Investment Trusts and ETFs. Getting rid of the Lloyds will help.
2. The LLPC are in my SIPP hence there is no Capital Gains tax to pay.
3. My expectation is that interest rates will be rising for the foreseeable future and hence I want to reduce my interest rate risk by moving money to shorter duration funds and/or moving from bonds to equity income. My SIPP currently yields 6.41% at book cost, 5.77% at market prices. Without the LLPC and POB (which redeems in December) the yields will be 6.35% and 5.75% respectively. The SIPP has been in fixed monthly drawdown mode for about ten years now and my objective has been to generate investment returns that pay the drawdown amount with enough left over to offset inflation. Up until recently this objective was being achieved but with inflation ticking up it’s going to get harder. By moving away from fixed income towards equity income I hope I can get more growth into the portfolio without losing the cover of the fixed income.
4. My SIPP is down to about 2% cash right now but with the LLPC and POB redemptions that figure will rise to about 6.5% which will give me the opportunity to add to existing positions or find something new.

As far as what could replace the LLPC and POBs, I haven’t yet decided. I could buy some more MBSP but that would go against some of my other objectives. I’ve also been looking at IUKD and NBMI.
Constructive comments welcome.

Y

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Re: Lloyds Prefs Tender Offer

#461401

Postby 88V8 » November 27th, 2021, 12:47 pm

yieldhog wrote:As far as what could replace the LLPC and POBs, I haven’t yet decided.

There was an income thread on the IT board here https://www.lemonfool.co.uk/viewtopic.php?f=54&t=31989 with some suggestions.

There are a few more in my portfolio which is here https://www.lemonfool.co.uk/viewtopic.php?p=458870#p458870

V8

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Re: Lloyds Prefs Tender Offer

#461408

Postby yieldhog » November 27th, 2021, 2:05 pm

Thanks V8, I will take a look through those, several of which I already own. I will post my updated portfolio shortly.

As a matter of interest, and not wishing to get told off for going off topic, does the 88V8 relate to a car by any chance?

Y

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Re: Lloyds Prefs Tender Offer

#461430

Postby Padders72 » November 27th, 2021, 5:10 pm

yieldhog wrote:As previously posted, I’ve opted to accept the Lloyds offer of 167.25 for my LLPC, which I bought quite a few years ago at 93.26. There’s no single right or wrong answer as to whether anyone should accept or decline the offer, it’s all down to personal circumstances and preferences. For what it’s worth, my reasons for accepting were:
1. In the particular portfolio where I hold the LLPC, I’m in the process of eliminating most of my single company exposures in favour of Investment Trusts and ETFs. Getting rid of the Lloyds will help.
2. The LLPC are in my SIPP hence there is no Capital Gains tax to pay.
3. My expectation is that interest rates will be rising for the foreseeable future and hence I want to reduce my interest rate risk by moving money to shorter duration funds and/or moving from bonds to equity income. My SIPP currently yields 6.41% at book cost, 5.77% at market prices. Without the LLPC and POB (which redeems in December) the yields will be 6.35% and 5.75% respectively. The SIPP has been in fixed monthly drawdown mode for about ten years now and my objective has been to generate investment returns that pay the drawdown amount with enough left over to offset inflation. Up until recently this objective was being achieved but with inflation ticking up it’s going to get harder. By moving away from fixed income towards equity income I hope I can get more growth into the portfolio without losing the cover of the fixed income.
4. My SIPP is down to about 2% cash right now but with the LLPC and POB redemptions that figure will rise to about 6.5% which will give me the opportunity to add to existing positions or find something new.

As far as what could replace the LLPC and POBs, I haven’t yet decided. I could buy some more MBSP but that would go against some of my other objectives. I’ve also been looking at IUKD and NBMI.
Constructive comments welcome.

Y


Re the LLPC/D swap for Manchester MBSR/P, my gut says that the risk of default or compulsory repurchase or whatever is way higher with the latter than the former so you may be diworsifying if you do that swap. I hold both so have no axe to grind but see both as perhaps expensive for the risk to reward ratio on offer, especially with MBSR.

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Re: Lloyds Prefs Tender Offer

#461438

Postby GoSeigen » November 27th, 2021, 5:48 pm

Padders72 wrote:
yieldhog wrote:As previously posted, I’ve opted to accept the Lloyds offer of 167.25 for my LLPC, which I bought quite a few years ago at 93.26. There’s no single right or wrong answer as to whether anyone should accept or decline the offer, it’s all down to personal circumstances and preferences. For what it’s worth, my reasons for accepting were:
1. In the particular portfolio where I hold the LLPC, I’m in the process of eliminating most of my single company exposures in favour of Investment Trusts and ETFs. Getting rid of the Lloyds will help.
2. The LLPC are in my SIPP hence there is no Capital Gains tax to pay.
3. My expectation is that interest rates will be rising for the foreseeable future and hence I want to reduce my interest rate risk by moving money to shorter duration funds and/or moving from bonds to equity income. My SIPP currently yields 6.41% at book cost, 5.77% at market prices. Without the LLPC and POB (which redeems in December) the yields will be 6.35% and 5.75% respectively. The SIPP has been in fixed monthly drawdown mode for about ten years now and my objective has been to generate investment returns that pay the drawdown amount with enough left over to offset inflation. Up until recently this objective was being achieved but with inflation ticking up it’s going to get harder. By moving away from fixed income towards equity income I hope I can get more growth into the portfolio without losing the cover of the fixed income.
4. My SIPP is down to about 2% cash right now but with the LLPC and POB redemptions that figure will rise to about 6.5% which will give me the opportunity to add to existing positions or find something new.

As far as what could replace the LLPC and POBs, I haven’t yet decided. I could buy some more MBSP but that would go against some of my other objectives. I’ve also been looking at IUKD and NBMI.
Constructive comments welcome.

Y


Re the LLPC/D swap for Manchester MBSR/P, my gut says that the risk of default or compulsory repurchase or whatever is way higher with the latter than the former so you may be diworsifying if you do that swap. I hold both so have no axe to grind but see both as perhaps expensive for the risk to reward ratio on offer, especially with MBSR.


While I don't entirely disagree with Padders72 given the tiny size of MBS compared to LBG, it seems to me that is about the only risk factor versus several problems with LLPC/D, namely: their (possibly vastly) lower yield, their higher premium over par, their more junior position in the respective balance sheets, the language of their terms and their higher duration which yieldhog stated was and important consideration for him.


So the question really is whether the credit risk and liquidity of MBS outweighs all the other advantages of their PIBS. I must declare an interest here as I hold almost 5% of one of the MBS PIBS and so am highly exposed those risks!

GS

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Re: Lloyds Prefs Tender Offer

#461691

Postby 88V8 » November 28th, 2021, 8:08 pm

yieldhog wrote:As a matter of interest, and not wishing to get told off for going off topic, does the 88V8 relate to a car by any chance?

Haha, yes.
A Landrover short wheelbase, generally known as the 88 because it has an 88" wheelbase.
And mine has a V8.
I also used to own a Triumph TR6, same wheelbase, but I never got round to putting a V8 in it.

GoSeigen wrote:....I hold almost 5% of one of the MBS PIBS ...

No wonder the liquidity is so poor ;)

V8

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Re: Lloyds Prefs Tender Offer

#461956

Postby hiriskpaul » November 29th, 2021, 11:58 pm

88V8 wrote:
GoSeigen wrote:....I hold almost 5% of one of the MBS PIBS ...

No wonder the liquidity is so poor ;)

V8

My wife and I hold nearly 5% of the 8% PIBS between us.

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Re: Lloyds Prefs Tender Offer

#462000

Postby Wozzitworthit » November 30th, 2021, 9:21 am

My wife and I hold 10% of what Paul and his wife hold !!

Regrettably all bought fairly recently ...

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Re: Lloyds Prefs Tender Offer

#462216

Postby JohnEdwards » December 1st, 2021, 1:41 am

With a week to go, I've been reviewing the options for my holdings of LLPC and LLPD, much acquired at about 50% of the tender prices and the remainder at about 80% - all in my SIPP. In principle I want to keep them for their 'guaranteed' level of income.

The example of NWBD (where I passed on the tender), showed that the market price fell away afterwards - partly owing to the prospects of rising (inflation and) interest rates, but partly I think because potential holders suspected that a future offer could be at a lower price.

All the same conditions apply now to the Lloyds offers in spades (unless Omicron tempers the prospects of early rate rises), so I am minded to tender most of my shares, in the hope of buying them back later at a worthwhile discount (perhaps 10p?). Clearly the usually wide bid/offer spread makes that more difficult, but I feel that patience could yield a useful turn - noting that they have just gone XD. I'm conscious though that 10p would represent a year's dividend, so it would need to come to pass well within that period to provide a worthwhile advantage.

I suppose the biggest question mark would be whether there would be sufficient availability, once the tendered shares have disappeared from the market; however, it appears that many institutional holders have decided to remain and I expect most retail holders will do so too - but almost by definition, none of them will be short-term sellers, especially at a lower price!

I'd love to hear others' views on this possibility.

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Re: Lloyds Prefs Tender Offer

#462558

Postby Surerera » December 2nd, 2021, 10:30 am

JohnEdwards - I tendered my LLPC which I bought years ago at 91 and they've been in an account I manage but rarely trade. The reason I tendered is because I don't see Lloyds offering a higher price anytime soon and I don't trust them not to try something dodgy to get them back at par - having been a holder of ECNs.

FWIW I've reinvested the money into AIRE for the following reasons:

98% of rents have been collected during Covid-19 pandemic.
87% of portfolio leases inflation-linked.
Net asset value is 86p, 15% discount.
Dividend 7%.

Surerera

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Re: Lloyds Prefs Tender Offer

#463329

Postby bruncher » December 5th, 2021, 6:18 pm

daveh wrote:
Rover110 wrote:
Victor55 wrote:I am wondering what are the main risks of not accepting the offer? (I hold LLPC)

What exactly does this mean ? "From 1 January 2022, the Offeror will classify any remaining outstanding preference shares as ineligible for regulatory capital purposes"

Is this statement more beneficial to Lloyds reporting results and does it mean they can change or withdraw in the near future the Prefs?

My assumption is that the most-likely risk is that Lloyds somehow manage to "repay at par".
So that means LLPC, which is currently trading at 166.85 will be forcibly repaid at only 100.

I assume there would be a substantial outcry if they shafted all the institutional shareholders like that, so Lloyds are offering them a way out. Who knows, behind the scenes they might even have told major shareholders that is their plan.

I continue to hold.
Rover


I'll wait and see the institutional take up of the offer before deciding. We should find out Monday and then (for my broker) I have until 5th December to decide what to do. I was having a search on the web for how much of each Pref. is still outstanding. I couldn't find anything on LLPC but found a figure of £97.14m for LLPD and £63.25m for LLPE (on market watch | think).


Could the institutions be negotiating an exchange into new debt instruments? Given what happened with the ECN's, it cannot be assumed that 'retail' holders will get the same offer. I have never understood how Lloyds got away with offering selected shareholders a different deal, but they did.

Disclosure: I have not held any kind of investment in Lloyds since the ECN betrayal.

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Re: Lloyds Prefs Tender Offer

#463342

Postby JohnEdwards » December 5th, 2021, 8:32 pm

JohnEdwards wrote:With a week to go, I've been reviewing the options for my holdings of LLPC and LLPD, much acquired at about 50% of the tender prices and the remainder at about 80% - all in my SIPP. In principle I want to keep them for their 'guaranteed' level of income.

The example of NWBD (where I passed on the tender), showed that the market price fell away afterwards - partly owing to the prospects of rising (inflation and) interest rates, but partly I think because potential holders suspected that a future offer could be at a lower price.

All the same conditions apply now to the Lloyds offers in spades (unless Omicron tempers the prospects of early rate rises), so I am minded to tender most of my shares, in the hope of buying them back later at a worthwhile discount (perhaps 10p?). Clearly the usually wide bid/offer spread makes that more difficult, but I feel that patience could yield a useful turn - noting that they have just gone XD. I'm conscious though that 10p would represent a year's dividend, so it would need to come to pass well within that period to provide a worthwhile advantage.

I suppose the biggest question mark would be whether there would be sufficient availability, once the tendered shares have disappeared from the market; however, it appears that many institutional holders have decided to remain and I expect most retail holders will do so too - but almost by definition, none of them will be short-term sellers, especially at a lower price!

I'd love to hear others' views on this possibility.

So guys - any thoughts on this?

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Re: Lloyds Prefs Tender Offer

#463384

Postby GoSeigen » December 6th, 2021, 7:34 am

JohnEdwards wrote:
JohnEdwards wrote:
I suppose the biggest question mark would be whether there would be sufficient availability, once the tendered shares have disappeared from the market; however, it appears that many institutional holders have decided to remain and I expect most retail holders will do so too - but almost by definition, none of them will be short-term sellers, especially at a lower price!

I'd love to hear others' views on this possibility.

So guys - any thoughts on this?


Okay I'll bite on the paragraph quoted.

I think you need to carefully work through the logic of this again. In my experience many people (perhaps even the majority) are quite willing to sell at lower prices and reluctant to sell at higher prices -- this is "dumb money" behaviour (by definition).

If your strong logical conviction is that this tender price is some sort of high point for LLPC/D/E and that prices will be substantially lower at some point hereafter and in the meantime you have other good ways to invest your assets, then it makes perfect sense to be selling. If you are proved correct, (i.e. prices fall substantially) then what does that say about those who refused to sell? Well clearly many of them had taken the wrong side of that trade: they made a call, perhaps hoping for further rises and were wrong. What makes you think that these people are going to be wiser when the price has fallen? Their typical psychology is to laugh at small falls and convince themselves they are part of the ups and downs. When the fall becomes painful (and often they are over-exposed) they begin to doubt themselves. Then a final washout happens at prices where either they have to sell having delayed the decision too long, or lose hope of the price rising again, or fear some other catastrophe. So those people it turns out are very willing to sell at lower prices.

In my experience it's easy to buy shares when prices are significantly depressed. One needs to be able to do so confidently and patiently, which you cannot do if you hold too many of them already.

Obviously in the above discussion the crucial question is whether your own call is correct. Make sure you're confident of your logic, then make the decision. I did with NWBD; in fact I sold in the market before the tender close date and had the wonderful opportunity to buy another share very cheap just as good news hit the company. So was that blind luck? Or was it a natural result of prudent asset allocation??

Good luck with your choice.

GS

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Re: Lloyds Prefs Tender Offer

#463391

Postby GrahamPlatt » December 6th, 2021, 8:42 am

There’s just one more wrinkle to that argument, which is CGT. Due to the sale of NWBD, I’m embarrassingly over my annual allowance. If I now accept the LLPC tender... ouch.

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Re: Lloyds Prefs Tender Offer

#463397

Postby GoSeigen » December 6th, 2021, 9:21 am

GrahamPlatt wrote:There’s just one more wrinkle to that argument, which is CGT. Due to the sale of NWBD, I’m embarrassingly over my annual allowance. If I now accept the LLPC tender... ouch.


ISA? SIPP?

And if you're so wealthy that you've been unable to use up all your allowances, then why is a bit of CGT such a burden? {That's a rhetorical question BTW, I know that tax is for the poor and feckless...}

GS

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Re: Lloyds Prefs Tender Offer

#463536

Postby Kirkie001 » December 6th, 2021, 3:31 pm

GoSeigen wrote:
GrahamPlatt wrote:There’s just one more wrinkle to that argument, which is CGT. Due to the sale of NWBD, I’m embarrassingly over my annual allowance. If I now accept the LLPC tender... ouch.


ISA? SIPP?

And if you're so wealthy that you've been unable to use up all your allowances, then why is a bit of CGT such a burden? {That's a rhetorical question BTW, I know that tax is for the poor and feckless...}

GS

Don't know about others' personal tax situations, but I'm in a situation where LTIP shares in a private company have created quite a tax headache - exercising options gives rise to a dry tax charge at marginal income tax rates; but the shares created on exercise can't be sold for a year - so my previous employer loaned the money to pay the tax.

The loan has to be repaid within a certain time or it itself also becomes taxable as a benefit - so to do that, the shares are sold the next year. But then the next year vests, etc etc ......

Basically end up in a situation where timing the sale of shares to create (a) enough proceeds to repay loans, and (b) not become subject to, or to minimise, CGT is a massive headache. Let alone trying to actually liquidate the shares into cash to actually realise the benefits....

So I'm basically in a situation where I'm butting up against CGT limits, but any cash I actually raise through sales doesn't sit with me. If I raise excess, then I get taxed as my annual limit's gone.

Thank goodness all my prefs are in ISAs.


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